What is a Performance
Management System (PMS)?
A Performance Management System (PMS) enables companies to measure their employees' performance continuously and effectively. It sets individual and team goals and aligns them with organizational objectives to ensure the development of employee skills and company productivity. A performance management system tracks and analyzes employee performance data, assists employers in making decisions and delivers feedback.
Performance Management Guide
What Is Performance Management?
Performance management is a set of processes that assists employers in monitoring and analyzing employees’ performance over a specific period. It creates an environment where employees can maximize their potential, perform better in their roles, and boost their success. Conversely, employers can smoothly evaluate and rate employees’ work. Performance management improves organizational strategic goals’ achievement and promotes a positive environment for employee growth.
According to Verified Market Research, performance management was valued at USD 10.5 billion in 2023. With the upcoming trends, it will cross USD 20.6 billion by 2030, where the CAGR would be 12.3% during the forecast period 2023-2030.
Top 6 Types of Performance Management Systems
Selecting the right performance management system helps employers evaluate employees’ performance and assist in feedback generation. On the one hand, it helps improve the employees’ personal growth; in contrast, employers track their performance on time, reflecting on their productivity and the ultimate business growth.
Here are the top 6 types of Performance management systems,
1.Management by Objectives (MBO)
Employers often use the ‘management by objective’ method to understand the overall performance of employees for a particular role they are dedicated to. The MBO ensures the task requirements of a job role and how the employees perform by aligning with the organizational objectives.
Moreover, with the MBO method, employers smoothly analyze employee performance data and deliver the correct feedback. The metrics show a transparent employee performance graph and assist management in understanding how to balance employee engagement and organizational goal achievement.
2. Bell Curve Method
The bell curve method is essential for understanding and analyzing bulk employee performance while the company delivers yearly team feedback. It is a graphical depiction representing a normal probability distribution whose underlying standard deviations from the mean create the curved bell shape.
Management often uses the bell curve mechanism in the workplace to detect team performance. However, it is not user-friendly or authentic for the one-to-one performance evaluation process. Let’s describe the mechanism using an example. In an office with 200 employees, the average score in the employee performance management system tracker(PMS) is 70, which occupies the top position of the graph. The smaller number is scored very low (say, 40) or very high (say, 95), forming the thinner tails on each side. So, it looks like Bell. Companies often track every year’s bell curve for consecutive years to graphically represent the ultimate fluctuation of employee performance.
3. The Balanced Scorecard
In a performance management system, the balanced scorecard is essential for tracking employee performance from multiple perspectives, not just financial outcomes. The scorecard shows the economic, customer-centric, internal process outcome, and learning and growth development metrics.
The approach balances the employee’s goal and the organization’s broader strategy. For example, in evaluating a sales employee’s performance, the balanced scorecard measures the sales numbers, customer satisfaction ratio, personal development ranking, etc. It initiates balanced growth, accountability, and long-term success.
4. Behaviorally Anchored Rating Scales (BARS)
The behaviorally anchored rating scale is one of the essential performance appraisal methods that companies use when they intend to rate employees differently. For instance, instead of simply rating employees within the range of 1 to 5, the company can use different terms like transparent communicative abilities, best ideas providers or brilliant problem-solver as ranking 5 out of 5. On the other hand, employers can use poor performance, poor collaboration, etc, instead of ranking 1 out of 5.
The process helps reduce bias, improve clarity, and ensure more objective and consistent performance evaluations based on observable actions rather than vague impressions.
5. The OKR method
OKR stands for objective and key results. It defines a strategy for communicating what organizations want to accomplish and how to achieve it. This method is primarily followed by big companies like MNCs or the world’s leading organizations to set organizational goals. The OKR approach creates a clear, focused, measurable framework for aligning individual, team, and organizational goals, which leads to ultimately satisfactory, quantifiable key results.
Through this OKR method, the employers get a transparent strategy of employee management and productivity; conversely, it keeps employees motivated, ensures strategic alignment across all levels, and fosters a results-driven culture that adapts quickly to changing priorities and business needs.
6. 360-Degree Appraisal
360-degree feedback and Appraisal are on-trend when an organization integrates the HRMS portal and ESS assistance. With the help of the ESS portal, employees can attend the self-evaluation process before the employers analyze their performance. Besides the self-evaluation method, the 360-degree feedback approach also assures other staff members, like co-workers, peers, and subordinates, to deliver feedback. It leads to better collaboration within the team, enhances team-building, and helps reduce the employer’s burden of evaluating employees.
What is the Performance Management Process?
A continuous performance management process refers to the continuous evaluation of the employees based on the individual goals set by the company for them. The process also includes the creation of these goals, as well as the development of a performance plan to achieve their goals within the specified timeframe.
The following are the major steps in the continuous performance management process:
▸Plan
The basic step in the employee performance management process is ‘planning’. It includes the creation of a plan for evaluating employees effectively while establishing the objectives for the performance management cycle. When setting goals, one should ensure that they come under fulfilling the requirements of SMART goals:
S – Specific
M – Measurable
A – Achievable
R – Relevant
T – Time-bound
A good planning strategy can align employee performance to organizational objectives. It can also be changed as per the changing business priorities, to ensure complete engagement from the staff members.
▸Act
Once the goals are set, the management should convey the same to their staff and gather feedback to make any changes as per their suggestions. Once they are finalized, it is time to put the wheels in motion. You need to start evaluating your employees based on their performance objectives. You should also take regular feedback from your staff to promote engagement.
▸Track
The next step is to constantly track the progress of the staff to understand whether they are on track. You should recognize and appreciate the employees who are on track while checking with the under-performers to understand what is hindering their progress. You can use various tools at your disposal such as 360-degree feedback, peer evaluations, etc. to undertake robust performance reviews and find any issues.
▸Review
Performance reviews are a part of the performance management process and it helps you communicate your thoughts and analysis with your staff once you have evaluated their performance. You can also help your staff understand how much they have contributed to the company’s growth and reward them accordingly. You can also discuss the career objectives of the employees and align them with the company objectives to ensure maximum engagement.
Why is a Performance Management System important?
The right system for performance management in HRM assists both employees and employers in aligning with their goals and expectations. Here are the top 5 points describing the importance of a performance management system in the organization.
Better Strategy Development
It creates clear criteria that maintain transparency between employees and employers.
Besides, the system involves numerous performance-related tools, such as KPIs and 360-degree performance trackers, that guides employees understand how to work efficiently to achieve positive outcomes.
A performance management system helps employers understand organizational goals and assists them in creating strategies for successful workplace workflows.
Conversely, the system guides employees in understanding their responsibilities and plans their work process to achieve their targets quickly. It introduces numerous performance-related tools, such as KPIs and 360-degree performance trackers, for employees and employers to understand the performance management process to achieve positive outcomes. It mainly creates clear criteria that maintain transparency between employees and employers.
Enhanced Transparency
A performance management system in HRM introduces numerous features or functionalities, such as OKRs(Objectives and Key Results), CSFs, PIs(Performance Indicators), and 360-degree feedback, that help organizations increase transparency in the workplace. Employees and their employers can also evaluate their performance using those trackers.
Hence, it becomes effective for employers to demonstrate the workflows or discuss any drawbacks to achieve positive outcomes.
Additionally, this platform facilitates open discussions between employees and management, creating a culture of honesty and trust and maintaining transparency within the organization.
Increased Engagement
A successful performance management system creates a communicative forum where employers and employees collaborate smoothly. Employers can use the platform to increase team engagement by establishing meetings, measuring monthly performance, delivering feedback, etc. Besides, an organization can set clear goals, offer feedback, and recognize the achievements of the top talent.
Conversely, it helps employees understand their role in the organization. Once the employees feel empowered, supported, and motivated for their contribution, it creates an overall positive work environment, which leads to ultimate business achievement.
Top Talents Recognition
In the corporate world, scrutinizing employee performance minutely to identify genuine top talent is challenging. A performance management system helps employers evaluate employee performance to effectively identify the company’s top talent and analyze the scope of further improvement. The system introduces numerous performance-tracking tools and functionalities that streamline the employee performance analysis process. Once the employers receive the outcomes, they can easily identify the high-potential candidates for future growth and development and understand where improvement is needed.
Un-biased Review
A performance management system establishes clear, object-related performance criteria and transparent evaluation processes by verifying employees’ work capabilities. One of the system’s fundamental principles is initiating unbiased workforce management for ultimate positive outcomes.
Besides, by using objective performance metrics like key performance indicators (KPIs), employers measure employees’ performance using the same standard, which promotes fairness and equity in performance evaluation and maintains an unbiased workplace.
What are the Key Components or Elements of a Performance Management System?
There are numerous components of a Performance Management System which help in its efficient functioning. These elements ensure that the system runs smoothly without hindering the daily work of the staff members. It also provides the HR and related teams with robust tools to actively engage the staff while evaluating their performance in the company.
The following are the key components of the performance management system:
1. Setting Goals
Goal setting is a basic component of any employee performance management system as it helps in setting meaningful SMART goals for the employees, based on their duties. You should also take care to let your staff understand the meaning of their goals, and how they tie into the organizational objectives. It will help keep them engaged since they will be able to realize how their job matters to the company.
2. Effective Communication
Open communication is the cornerstone of any successful organization. Hence, you should foster a culture of open communication and collaboration, which helps in keeping your staff motivated. If you are a manager, keeping an open line of communication will help in keeping your employees posted about their progress as well as how relevant their job is for the organization.
3. Regular Reviews
Performance reviews are an essential component in a performance management software as they help in communicating what the management thinks about the staff’s performance on an individual level. Performance appraisal used to take place either annually or quarterly in the legacy method of performance management. However, it has been replaced with continuous feedback in the newer systems.
4. Employee Recognition
With the right recognition, you can convert any employee to an engaged one as they realize their importance and worth in the company. With adequate employee recognition, companies can keep their staff engaged and motivated to work harder. Hence, the newer performance management systems come with multiple kinds of employee rewards and recognition modules to help managers recognize their employees’ efforts.
5. Constructive Feedback
While providing feedback to your staff members, you should ensure that it is constructive in nature. Constructive feedback refers to a form of feedback in which you also help them understand how to improve themselves when you are pointing out their shortcomings. Instead of simply commenting ‘Good Work’ or ‘Needs Improvement’, you should provide them with the reason for the feedback to let them understand what they are doing right or wrong.
6. Continuous Learning
Learning and development go hand in hand with performance feedback as upskilling and reskilling the staff are essential parts of performance management. Having good-performing employees helps in improving the quality of the products and services of the organization, leading to a better brand image. Hence, it is essential to create a culture of continuous learning and development to let your staff become self-sufficient.
Benefits of Deploying a Performance Management System
There are several benefits of deploying an effective performance management system. While it drives the productivity and the profitability of the company, it has other benefits too. Some of the most relevant benefits of deploying a performance management software are:
▸Consistent Performance
Since the performance management system is deployed keeping the organizational performance objectives in mind, following it will give rise to consistent performance. The system can set performance expectations for each employee, and it will be in tune with the organizational objective to ensure maximum effectiveness.
▸Motivated Staff
Since the employees understand which parameters they are evaluated against, they can focus on improving those for enhanced productivity. The performance management system can also enable the managers to provide recognition for any task well done as soon as it is completed. It results in motivated staff who are willing to undertake their tasks effectively.
▸Better Performers
With the help of effective performance management software, the company can appreciate their talent, resulting in the recognition of better performers. It also helps the training and development department to realize the potential of their staff and reallocate the training resources accordingly.
▸Employee Engagement
With the deployment of a performance management system, the employer can understand the performers and the training requirements of the team. Such training will eventually lead to better-performing personnel in the company, who are also highly motivated to work in the organization. As a result, they stay engaged with their company for longer.
▸Effective Training
The performance management system can measure the overall productivity of the staff for specific durations. Hence, it can be used effectively to understand the improvement brought about by the company’s training initiatives. By understanding the training effectiveness, the company can understand whether any changes are required to better their workforce productivity.
▸Performance Automation
With modern AI-based performance management systems, the entire performance management process can be automated with the help of augmented processing. As a result of such innovative tools and increased automation, HR and management can focus on running the business effectively with the software undertaking employee performance-related activities.
▸Fair Appraisals
Performance management systems can provide tangible data for measuring the performance of staff members. As a result, they can provide accurate appraisals and justify their decisions, in case of any dispute. It results in increased trust in the HR and management as the system helps in keeping the appraisals transparent.
▸Time Savings
With increased automation and increased accuracy, a performance management system helps reduce the time taken to measure employee performance. Additionally, with continuous performance evaluation methods, you can take corrective actions as soon as you realize there is any discrepancy in your staff performance, making it highly efficient for any organization.
▸Paper Trails
With an effective performance appraisal system in place, you can have a paper trail for your performance management cycle. It helps improve the transparency of the process as well as provide necessary evidence in case any employee objects to their appraisal. Such measures provide the company with easy paper trails to ensure a fair and just appraisal system.
Statistics on Modern Performance Management Systems
Following are some of the common statistics of modern performance management systems:
98% of organizations understand the relevance of performance management.
80% of millennials prefer instant peer-to-peer recognition over some annual reward.
59% of staff believe that legacy evaluation methods have no impact on their performance.
90% of performance evaluations are usually distressing for the employee.
95% of HR managers find their company’s performance reviews unsatisfactory.
51% of employees find annual reviews highly inaccurate.
Who uses Performance Management Systems?
Performance Management Systems are an essential part of any organization that employs individuals to undertake their work. Following are some of the common users of this system:
▸Employees
As it impacts them directly, the employee is the foremost user of a performance management system. They can discuss their annual goals with their manager to define their objectives. They can also participate in reviewing their peers as a part of the 360-degree feedback process.
▸HR Personnel
The HR department is concerned with the annual appraisals of the staff. Hence, they need the support of performance management systems to evaluate the performance of their staff and provide fair appraisals based on it.
▸Management
The management has the final say in providing the staff with appraisals. Hence, they need to access the performance management system to understand whether their staff has managed to achieve their goals on time.
How to Select the Best Performance Management System?
There are certain factors to consider while selecting the best performance management system for your organization. Since this system is continuously evaluating your employee performance, you should ensure that it is customizable as per your policies. Additionally, numerous other factors should be considered while choosing the ideal performance management software for your company, such as:
1. Goal Setting
The performance management software should provide the necessary options to set, track and collaborate on employee goals on an individual level. These goals should be aligned with the company’s goals and hence, it should also have the option to set organizational goals.
2. Trackable Performance
The software should also provide you with the option to track the performance of your staff. It should ideally provide you with a template of the best practices in your industry, as well as the ability to create private remarks. Since performance reviews are confidential, the software should provide options to access previous performance review data of an employee to their manager.
3. Continuous Feedback Options
Since peer-to-peer recognition plays a crucial role in motivating the staff to undertake their duties efficiently, a performance management system should provide the option to recognize them publicly. It should also alert their manager if multiple peers are recognizing the same employee as a performer.
4. Conversation Tracking
The software should also provide options to log conversations as well as provide instant feedback to the staff as and when their manager sees fit. Since timely feedback is essential for motivating any employee, having the option to do it automatically enhances the usability of the system.
5. Training Opportunities
The system should also provide adequate training opportunities to ensure that the staff is trained well to meet the performance requirements of the company.
6. Software Integration
The software should provide easy integration options with other commonly used commercial software such as HRMS, payroll, etc. for a streamlined user experience. It should also be easy to implement with adequate customizability options to cater to the individual needs of the company.
Before inducting any performance management system in your HRMS solution, you must ensure whether integrating a performance management program is effective for overall business growth and target achievement.
in India
FAQs on Performance Management System
Although there is no performance management definition, PMS in HR is a process for setting goals and evaluating employees based on those goals, which are defined by a predetermined period.
An employee appraisal management system, also known as a performance appraisal system, is a structured process used by organizations to evaluate and assess employee performance. It involves setting goals, conducting evaluations, providing feedback, and promoting employee development. It helps organizations in measuring performance, recognizing achievements, and identifying areas for improvement.
The most commonly used methods of performance management are:
360-degree Feedback Method
Behaviourally Anchored Rating Scale (BARS) Method
Assessment Center Method
Human Resource Accounting Method
Following are some examples of the best performance management systems in India:
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Keka HR
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GreytHR
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HR Mantra
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Zimyo HR
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Zing HR
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Zoho HR
Yes, the system can be customized according to your needs. The system offers numerous performance-tracking tools and related functionalities for maintaining a non-biased, transparent performance evaluation. Besides, it has become influential in HRMS and payroll software solutions.
Yes, employers can provide feedback either regularly or on a monthly, half-yearly, or yearly basis.
Yes, the performance management system is generally suitable for all organizations. Yet, in the case of an SME or any start-up business, management may find some simpler version of performance management or perform it manually. However, different MNCs or big industries may need specialized systems to handle the performance of thousands of employees.
The company should decide which performance-tracking functionalities suit employers based on the organization’s requirements.
After updating your data in a system, you can relax, as your data is kept safe and secure for a lifetime. It includes different encryption protocols, data protection regulations such as GDPR or CCPA, and robust access controls to restrict fraudulent activities. Besides, it offers features like audit trails and user authentication for securely storing data in a database.
For example, with Pocket HRMS, you can be sure of the security of your company data as we use Microsoft Azure Cloud, which provides 256-bit enterprise-level security.
Yes, The system can easily integrate with the HRMS software and related HRMS payroll.
Yes, some specific training is necessary to use the system effectively. The training includes how to navigate the system correctly, input the employee performance data accurately, conduct performance evaluation within the estimated duration, and generate reports.
Training can be self-paced online tutorials or in-person workshops provided by the software specialist to both employees and employers. For example, if you integrate the Pocket HRMS performance management system with your HRM solution, we will provide detailed training on it.
